IN the case of M/s Wipro Ltd. Vs. Assistant Collector of Customs – 2015-TIOL-79-SC-CUS the Apex Court held that under Customs Valuation, an arbitrary loading of 1% as landing cost towards loading, unloading and handling charge is unsustainable and it will apply only when actual charges are not ascertainable.

In the light of above ruling, the Central Government has examined and amended the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 (CVR, 2007) vide Notification No. 91/2017-Customs (N.T.) dated 26th September 2017 . CBEC has also issued a Circular No. 39/2017-Customs dated 26th September 2017, wherein amendments carried out in the valuation rules have been explained and clarified.

In the said notification, three important changes have been done:

- Place of importation defined.

- Notional landing cost of 1% done away with.

- Clarification regarding transhipment of goods through sea or air kept at par among all custom stations.

This can be elaborated as below:

1. The term "place of importation" has been used in the CVR, 2007; however, the term was not been defined anywhere in the Rules. This had led to confusion and misinterpretation time and again. To bring in clarity, the "place of importation" has been defined as:

"Place of Importation" means the customs station where the goods are brought for being cleared for home consumption or for being removed for deposit in a warehouse"

This implies that when the goods are imported through sea at Nhava Sheva port and therefrom it is transhipped to ICD, TKD for being cleared for home consumption then as per the definition place of importation, in this case, would be ICD, TKD where goods are finally cleared for home consumption.

Similarly, in case goods are imported at Nhava Sheva port and cleared therefrom to deposit in a warehouse located in Custom bonded warehouse in Delhi, the place of importation would be Nhava Sheva in such case.

2. The notional landing cost of 1% is done away with from Rule 10 clause 2 of CVR, 2007

The comparison between earlier and new law is explained by way of following table:

Erstwhile Rule 10 (2)

Amended version

(2) For the purposes of sub-section (1) of section 14 of the Customs Act, 1962 (52 of 1962) and these rules, the value of the imported goods shall be the value of such goods, for delivery at the time and place of importation and shall include –

(a) the cost of transport of the imported goods to the place of importation;

(b) loading, unloading and handling charges associated with the delivery of the imported goods at the place of importation; and

(c) the cost of insurance:

Provided that -

(i) where the cost of transport referred to in clause (a) is not ascertainable, such cost shall be twenty per cent of the free on-board value of the goods;

(ii) the charges referred to in clause (b) shall be one per cent of the free on-board value of the goods plus the cost of transport referred to in clause (a) plus the cost of insurance referred to in clause (c);

(iii) where the cost referred to in clause (c) is not ascertainable, such cost shall be 1.125% of free on-board value of the goods;

Provided further that in the case of goods imported by air, where the cost referred to in clause (a) is ascertainable, such cost shall not exceed twenty per cent of free on-board value of the goods:

Provided also that where the free on-board value of the goods is not ascertainable, the costs referred to in clause (a) shall be twenty per cent of the free on-board value of the goods plus cost of insurance for clause (i) above and the cost referred to in clause (c) shall be 1.125% of the free on-board value of the goods plus cost of transport for clause (iii).

Provided also that in case of goods imported by sea stuffed in a container for clearance at an Inland Container Depot or Container Freight Station, the cost of freight incurred in the movement of container from the port of entry to the Inland Container Depot or Container Freight Station shall not be included in the cost of transport referred to in clause (a).

Explanation . -

The cost of transport of the imported goods referred to in clause (a) includes the ship demurrage charges on charted vessels, lighterage or barge charges.

"(2) For the purposes of sub-section (1) of section 14 of the Customs Act, 1962 (52 of 1962) and these rules, the value of the imported goods shall be the value of such goods, and shall include –

(a) the cost of transport, loading, unloading and handling charges associated with the delivery of the imported goods to the place of importation;

(b) the cost of insurance to the place of importation:

Provided that where the cost referred to in clause (a) is not ascertainable, such cost shall be twenty per cent of the free on-board value of the goods:

Provided further that where the free on-board value of the goods is not ascertainable but the sum of free on-board value of the goods and the cost referred to in clause (b) is ascertainable, the cost referred to in clause (a) shall be twenty per cent of such sum:

Provided also that where the cost referred to in clause (b) is not ascertainable, such cost shall be 1.125% of free on-board value of the goods:

Provided also that where the free on-board value of the goods is not ascertainable but the sum of free on-board value of the goods and the cost referred to in clause (a) is ascertainable, the cost referred to in clause (b) shall be 1.125% of such sum:

Provided also that in the case of goods imported by air, where the cost referred to in clause (a) is ascertainable, such cost shall not exceed twenty per cent of free on-board value of the goods:

Provided also that in the case of goods imported by sea or air and transhipped to another customs station in India, the cost of insurance, transport, loading, unloading, handling charges associated with such transhipment shall be excluded.

Explanation:

The cost of transport of the imported goods referred to in clause (a) includes the ship demurrage charges on charted vessels, lighterage or barge charges."

In the erstwhile law, the ambiguous language used in the section was inviting misleading interpretations in calculating the assessable value of the imported goods and consequently the customs duty. Also, the addition of 1% notional value towards loading, unloading and handling charges generally called landing charges in the CIF value was illegal and arbitrary in the sense that it was against the policy of Valuation as per GATT. As India is a signatory and has to abide by the rules laid down for the same. The provisions of the General Agreement on Tariffs and Trade (GATT) inter alia provides the yardsticks/methodology for arriving at assessable value. It provides under Article 8 clause 2 that:

In framing its legislation, each Member shall provide for the inclusion in or the exclusion from the customs value, in whole or in part, of the following:

(a) the cost of transport of the imported goods to the port or place of importation ;

(b) loading, unloading and handling charges associated with the transport of the imported goods to the port or place of importation ; and

(c) the cost of insurance.

This implies that there is an option given to the signing States to either consider FOB value or CIF value as assessable value, by including the other costs as stated above in whole or in part to the value of goods. It is clear from above that any cost born by the buyer associated with the transportation of goods to the place of importation shall be includible. The notional value of 1% towards clause (b) in CVR, 2007 was unwarranted. Once the goods are transported to the customs station after that no other expense can be included in the assessable value of the goods.

As per the amendment carried out in the CVR, 2007, the assessable value of the imported goods shall be the value of the imported goods and shall include: the cost of transport combined with landing charges paid towards transportation of goods and cost of insurance. So, if the value of freight and landing charges are not separately known but their sum is known then it will be added to the assessable value. As per the previous provision, it was compulsory for the importer to add 1% towards these charges which is now done away with. In cases where the shipping line has issued an invoice towards delivery of goods without separately mentioning the cost of transport and other charges then if no other cost are paid by the importer then nothing will be added towards the other charges for calculating assessable value.

The ship demurrage charges on charted vessels, lighterage or barge charges are by name included in the cost of transportation.

As per the new provisions the assessable value will be calculated in the following manner:

These values will be calculated as per actuals. But where the actual values are not available the same will be calculated as per the proviso to the Rule which provides that:

- where B is unascertainable then it will be calculated as twenty percent of A.

- where B is unascertainable and separate value of A is unavailable but the sum of A and C is available then B will be calculated as twenty percent of that sum.

- where C is unascertainable then it will be calculated as 1.125% of A.

- where C is unascertainable and separate value of A is unavailable but the sum of A and B is available then C will be calculated as 1.125% of that sum.

3. Clarification and amendment regarding transhipment of goods through sea or air kept at par among all custom stations.

There has been a clarification issued regarding the transhipment cost which has to be excluded from the assessable value of the imported goods. In the previous provision it was provided that if the goods imported through sea are transhipment to any CFS or ICD then the said cost associated with such transport shall be excluded for calculating the assessable value.

Old provision

"Provided also that in case of goods imported by sea stuffed in a container for clearance at an Inland Container Depot or Container Freight Station, the cost of freight incurred in the movement of container from the port of entry to the Inland Container Depot or Container Freight Station shall not be included in the cost of transport referred to in clause (a)."

Amended provision

"Provided also that in the case of goods imported by sea or air and trans-shipped to another customs station in India, the cost of insurance, transport, loading, unloading, handling charges associated with such trans-shipment shall be excluded."

By the said amendment, goods even if imported through air at an Indian Custom station, when transhipped to other custom station in India for clearance, the cost associated to such transportation shall be excluded from the assessable value keeping it at par with goods imported by sea.

Conclusion:

It seems to be a step towards ease of doing business by the Central Govt. by relaxing and removing the arbitrary provisions in the law. It would obviously reduce the tax burden on the importer as the landing charges,in most of the cases,are very less as compared to the 1% that was levied by the previous provisions. Also, there is better clarity as to the place of importation and costs that need to be included. Any cost which is unrelated to such importation or which is not associated with the delivery of the imported goods will not be included. Still there would be challenges as to ascertain the cost incurred towards these landing charges,etc. The actual landing charges will have to be obtained from shipping lines, NVOCC, airlines, console agent etc. which may lead to delay in providing the actual cost and consequently delay in submission of B/E's. There may also be interpretative disputes with department regarding heads to be covered under 'actual landing charges'. Nevertheless, an arbitrary provision can't prevail as well.

(The views expressed are strictly personal.)

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